Avail Benefits u/s 80C but Take Precautions…. November 8, 2007

Section 80C of Income Tax Act, 1961 is the most widely adopted beneficial section and popular among tax planners… You can claim upto Rs.1,00,000 deduction from your Gross Total Income. Only on the balance amount, tax rates will apply.  It is like a Sweet Pill, Beware of, blindly claiming deduction under this section and be aware of the precautions to be taken, Read on to know more……..

 (The discussion in this article is in the context of Indian Taxation laws and Indian Economy only) 

Firstly, this beneficial section can be availed ONLY by Individuals and HUFs.

Partnership Firms, Companies, Other Corporate Bodies cannot avail this deduction..

 If you need a Brief on working of this section, take an example……..

Mr. A’s Gross Total Income is Rs.5,00,000/- per annum. He pays his Insurance premiums regularly and during the year he paid Rs.34,000/- as Insurance Premiums. He paid tuition fees for his children Rs.8,000/- and he has also contributed to his PPF Account Rs.40,000/-So. Mr. A’s eligible 80C deduction comes to Rs.34,000 + Rs.8,000 + Rs.40,000 = Rs.92,000So. Mr. A’s Taxable Income is Rs.500,000 – Rs.92,000 = Rs.408,000.Tax on above roughly works out to Rs.73,848/-

  

The following table illustrates the widely used benefits, available under the section and the precautions to be taken or things to ensure before taking deduction.

 

You can claim deduction for …	Precaution to take…
Actual amount paid towards Life Insurance Premium	The Policy should be taken on the Individual or spouse or children ONLY. The premium eligible for deduction is subject to a max of 20% of sum assured. (Commonly people think, that whatever is the premium, is eligible.) Minimum period of holding the policy is 2 years.
Contribution to PF, PPF, NSC, ULIP of UTI, ULIP of LIC MF	Not much precautions, but from the point of view of liquidity, PPF is for 15 years, PF is till retirement or death, NSC for 6 years. So watch out for liquidity criteria, before investing in these to claim 80C benefits…..
Any sum paid as tuition fees	You have to ensure that in the tuition fee receipt the amount juxtaposed to “Tuition Fee” can only be claimed. Though the receipt may be for say 4000/- the tuition fee component would be for only say, 1200/-, You will get deduction for only 1200/- and not 4000/-. So be careful. Also the university, college or educational institution should be in India only. The education should be full time education, not part time education.
Housing Loan Repayment towards Principal	There is no ceiling for claiming principal repayment of housing loan, except for the outer limit of Rs.100,000/-Even the stamp duty, registration fee and other expenses for the purpose  of transfer of house property to the assessee is eligible under this section. Many are unaware of this particular point.Minimum period of holding is 5 years.
Investment in Fixed Deposits in banks	The FD should be for 5 years or more.
Subscription towards notified units of Mutual Funds or UTI	Note the word ‘Notified’. So check out before claiming deduction, whether your mutual fund units are ‘Notified’. You can check these in the prospectus documents you would have received while applying for these units.

           

Why a beneficial section like this is termed as a Pill? 

Some people or tax payers show for example Rs.200,000/- as their Gross Total Income and claim 80C benefits upto Rs.100000/-. Which means he has for himself Rs.100000/- to spend on personal purposes. Given, his lifestyle, social identity, the dependents on him and other things, he must be spending far more than Rs.100,000/-. Then, it means that, he has UNDISCLOSED INCOME and the IT officer would try to add an estimated amount of Undisclosed Income and levy tax.  So. Moral of the story is…….. Do not claim the benefits u/s 80C blindly. Ensure you have shown the sources of money from which you invested or spent on the eligible amounts of deductions.

Please note that, There is a holding period constraint in respect of few deposits which you should keep in mind.

For example, Principal repayment of housing loan is allowed as deduction under this section, but the pre-condition is that you should not sell this house property for which you are claiming deduction in the next 5 years. As usual many forget this or are not aware of this condition and may sell before 5 years. Consequence: Whatever deduction was claimed in the earlier years would become the Income of the person in the year in which transfer is done.  

SO………. PLAN….… AND…. STOP THE TAX BECOME AN AXE…..

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